Terry Smith ditches an AI share, as investors buy into a hot theme and drop an old favourite.
Interest rate rises and mortgages are the talk of the town. The Bank of England made its 13th consecutive rate hike from 4.5% to 5% mid-month. While this brings pain to mortgage holders and renters alike, rising interest rates increase the attractiveness of money market funds such as Royal London Short Term Money Market, which has climbed to second place in our top 10 ranking of the most-popular investment funds, according to the number of ‘buys’ among our customers in June.
The Royal London actively managed fund, with low charge of 0.1% a year, is proving popular amid speculation that interest rates could peak at 6.25% by the end of the year. Investors like the low-risk nature of money market funds since the returns on their cash-like investments rise as interest rates increase. The yields on money market funds are generally higher than those offered by bank accounts too, with the Royal London fund yield currently at 4.65%, according to the latest factsheet dated 31 May. Money market funds can be held inside an ISA, SIPP, or general investment account on the interactive investor platform.
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Meanwhile, interest in artificial intelligence (AI) has ramped up and is the hottest investment theme right now, but are investors biting? Fund manager Terry Smith recently revealed that he ditched Amazon.com Inc (NASDAQ:AMZN), one of the ‘Magnificent Seven’ mega-cap US tech stocks with exposure to the AI theme, less than two years after buying the e-commerce firm. Read about the suspected hit Smith took on the sale and other recent portfolio changes for Fundsmith Equity, which remained the most-bought fund on the platform in June and one of only two actively managed funds in the top 10.
Passive strategies continue to dominate the most-popular funds list, with two funds in the Vanguard LifeStrategy range, the 80% Equity and 100% Equity options, taking third and fifth place respectively in the top 10 table. Interestingly, the 60% Equity option – a longstanding fund in the most-bought funds’ list for many years – has fallen out of the top 10. It is unlikely that cost is a contributing factor, as the charge for this fund is only 0.22%. Instead, investors in this ‘middle ground’ fund may be disappointed by its short-term performance and are seeking alternatives. Following last year’s unusual uncoupling of bonds and equities, multi-asset funds with a higher weighting to bonds performed worse than those with less exposure, even though conventional wisdom dictates that bonds are low risk. Much has been written about how the 60/40 portfolio split of equities and bonds is outdated, although there are as many arguments for its continued relevance.
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The other passive funds in the top 10 are: Vanguard US Equity Index (unchanged in sixth place), Vanguard FTSE Glb All Cap Index (seventh), Vanguard FTSE Dev Wld ex-UK Equity Index (10th) and new entry Fidelity Index World (eighth), which was last in the top 10 in April.
Returning to the AI theme, investors do appear to be seeking exposure from the appearance and positioning of two tech funds in our table. Investors are hoping that the interest rate hiking cycle in the States is ending, and that inflation is cooling, which has renewed appetite for tech stocks. Although the tech-heavy Nasdaq has enjoyed its best first half since 1983, and Apple Inc (NASDAQ:AAPL) has hit a record-breaking $3 trillion valuation, investors must weigh up whether they think the tech rally has further to run.
L&G Global Technology Index, which invests in the shares of global companies engaged in information technology activities, has climbed three places from seventh to fourth place. Saltydog Investor has invested in this tech fund, whose performance shot up in January and rallied again over the past few weeks. We recently identified the fund, whose ongoing charges figure (OCF) is 0.70%, as one of the top-performing passive strategies playing the AI theme. Its top 10 holdings include NVIDIA Corp (NASDAQ:NVDA), Meta Platforms Inc Class A (NASDAQ:META) and Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM).
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L&G Global 100 Index, which invests in the shares of 100 companies of major importance across all geographical areas, is a new entry in ninth place. The £848.7 million global fund has significant weightings to mega-cap US tech stocks including Apple, Microsoft Corp (NASDAQ:MSFT), Alphabet Inc Class A (NASDAQ:GOOGL), and Amazon, and has an ongoing charges figure of 0.52%.
The two funds that exited the top 10 in June were HSBC FTSE All-World Index and Vanguard LifeStrategy 60% Equity.
Top 10 most-popular funds in June 2023
|Rank||Fund||IA sector||Ranking change since previous month||1-year return to 3 July (%)||3-year return to 3 July (%)|
|1||Fundsmith Equity||Global||No change||13.62%||24.33%|
|2||Royal London Short Term Money Mkt||Short Term Money Market||Up one||3.14%||3.43%|
|3||Vanguard LifeStrategy 80% Equity||Mixed investment 40%-85% shares||Down one||6.02%||20.09%|
|4||L&G Global Technology Index||Technology and Technology Innovations||Up three||28.93%||53.19%|
|5||Vanguard LifeStrategy 100% Equity||Global||Down one||9.47%||32.17%|
|6||Vanguard US Equity Index||North America||No change||10.68%||41.70%|
|7||Vanguard FTSE Global All Cap Index||Global||Down two||9.14%||31.56%|
|8||Fidelity Index World||Global||New||12.38%||36.91%|
|9||L&G Global 100 Index||Global||New||13.50%||47.17%|
|10||Vanguard FTSE Dev World ex-UK Equity Index||Global||Down two||11.40%||36.34%|
Source: interactive investor. Note: the top 10 is based on the number of “buys” during the month of June.
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